Synopsis:- Heritage Foods delivered its highest-ever quarterly revenue in Q1 FY27, but the more telling number is that value-added products now make up 44 percent of that revenue, up from 36 percent a year ago, as the company quietly reshapes itself around branded, higher-margin food categories.
Dairy companies in India have spent the last few quarters fighting the same battle, milk procurement costs climbing faster than they can comfortably pass on to consumers. Heritage Foods’ latest results show a company that has decided the way out of that squeeze is not to win the milk price war but to slowly stop depending on milk to make money in the first place.
With a market capitalization of Rs. 3,131.86 crore, the shares of Heritage Foods closed on Friday at Rs. 335.30 per share, up 1.59 percent from its previous close of Rs.330.05. The stock is trading at a P/E of roughly 22.77.
What’s the news?
Heritage Foods reported consolidated revenue of Rs. 1,338 crore for the June quarter, up 18 percent year-on-year, its highest quarterly revenue in the company’s history. EBITDA stood at Rs. 61.9 crore, translating into a margin of 4.6 percent, while profit after tax came in at Rs. 25 crore, a PAT margin of 1.9 percent.
The headline number, though, is the value-added products business, which grew 40 percent year-on-year to Rs. 564 crore, comfortably outpacing overall revenue growth. Management said the bulk of that, roughly 35 percentage points out of the 40 is came from volume growth rather than pricing, with a weighted average price hike of only about 5 percent across the value-added portfolio.
Segment Analysis
The category-level detail is where the shift becomes concrete. Paneer volumes grew 33 percent, curd 26 percent, ice cream 25 percent, buttermilk 60 percent, and lassi 98 percent year-on-year.
As a result, value-added products contributed a record 44 percent of consolidated revenue, up from 36 percent in the same quarter last year. Including the consumer ghee and butter portfolio, the broader premium basket reached 49 percent of revenue, up from 41 percent, putting the company within touching distance of the 50 percent mark it has set as a longer-term target.
Management was candid that raw milk economics are still not fully cooperating. Milk procurement prices rose 7 percent year-on-year to Rs. 46.61 per liter, driven by tight supply, particularly in buffalo milk, where volumes fell over 20 percent during the quarter and pushed the company toward a higher mix of cow milk.
That mix shift, alongside higher skimmed milk powder consumption and a roughly 30 basis point hit from costlier packing material, was the main reasons gross margins came under pressure even though milk and value-added product prices both moved up over the quarter.
Beyond Milk
Beyond category-level volume growth, Heritage has been building out an ecosystem of branded, higher-margin businesses rather than treating value-added products as a side hustle to liquid milk.
During the quarter, Heritage Novandie Foods became a wholly owned subsidiary, a move aimed at scaling the Livo high-protein yogurt brand, while the company raised its stake in Peanut Butter and Jelly Limited to 71 percent, a bet on the broader better-for-you nutrition segment.
Alongside these, the company continues to push newer brands such as Nourish+, Alpenvie, Sampurna A2 Curd, organic milk, and Chef’s Choice curd, each aimed at a slightly different premium consumer segment.
The ice cream business in particular is scaling quickly, crossing Rs. 55 crore in quarterly revenue with 65 percent year-on-year growth, and the company’s newly commissioned ice cream facility, which manufactures both the Alpenvie and Get-A-Way brands on a shared platform, reached around 40 percent capacity utilization during the quarter. Get-A-Way itself grew revenue 196 percent year-on-year and is nearing breakeven at the bottom line, aided by better product availability following the capacity expansion.
Management attributed roughly 80 percent of value-added product growth to distribution expansion within existing markets, essentially adding more outlets and touchpoints in geographies Heritage already serves, rather than entering new regions. The remaining 20 percent came from market share gains, which the company said it captured specifically from other organized, branded players in categories such as curd, paneer, and buttermilk, since growth taken from the unorganized sector is broadly shared across the industry and not unique to Heritage.
Financial Performance
The profitability gap between the two halves of the business remains stark. Value-added products carried an EBITDA margin of 8.06 percent for the quarter, compared to just 3.03 percent for the liquid milk business, though both were down from the prior year’s 9.7 percent and 5.8 percent, respectively, as raw milk inflation weighed on the entire portfolio.
Management pointed out that value-added product margins held up better in percentage terms during the raw milk price spike, evidence, in their view, that the category is gradually becoming less sensitive to milk cost swings as its consumer salience grows.
Operating leverage is also starting to show through in the cost structure. Other operating expenses fell to 9.01 percent of revenue from 9.64 percent a year earlier, and employee costs declined to 6.74 percent of revenue from 7.21 percent, together adding roughly 1.1 percentage points back to the bottom line even as raw material costs rose 2.54 percent of revenue over the same period.
What is management saying?
Management reiterated that it does not consider a 6 percent EBITDA margin an ambition worth aiming for, instead targeting a return to the high single digits it has averaged historically, closer to 7 to 7.5 percent. Getting there depends on two things happening together: continued value-added product mix expansion and an eventual easing in raw milk procurement inflation, which management described as cyclical rather than structural, pointing to milk prices that have moved between roughly Rs. 41 and Rs. 47 per litre over the past three years.
What Should Investors Look Out For
Investors should track two things closely over the coming quarters: whether the roughly 2 to 2.5 percentage point annual improvement in value-added product contribution that management has targeted for years continues at the accelerated pace seen this quarter and whether the October-November buffalo milk flush brings the relief in procurement costs that would let margins recover meaningfully.
Liquid milk volume growth, which management itself flagged as the business’s biggest unresolved problem, is also worth watching, since a sustained recovery there would support better overhead absorption across the entire dairy operation rather than leaving that burden to value-added products alone.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
